Take The Hit – Fix Eskom Properly

We’re teetering from moment to moment. Will there be load-shedding today? Or tomorrow? What about the weekend? By all accounts, Eskom itself doesn’t know – it all depends on ageing and overworked equipment holding out, to say nothing of whether there are enough rands left in the kitty to buy a few thousand litres of diesel.

We’re also now starting to see the hard numbers coming through. November’s manufacturing production, for example, was down 2.1%, directly attributable to Eskom’s load-shedding at the start of the month, according to Stanlib economist, Kevin Lings. He thinks that we will end the year – 2014, that is – in negative territory for manufacturing.

The soft numbers are less easy to detect. What investments have not happened because Eskom can’t guarantee to keep the lights on? How many businesses are going to open up in places like Lagos or Nairobi or Kigali, instead of Johannesburg? How many businesses are heading towards closure because turnover at a crucial time of year has been hit by power cuts? It’s impossible to say with any certainty.

Clearly, it can’t go on like this. Not if we are to make any kind of economic progress in a world that’s tricky enough with a reliable power supply.

Government needs to make a very tough decision: go as soon as possible to maximum load shedding and fix Eskom properly, once and for all. Announce the plan well in advance so those businesses that need generators can acquire them. Stick to the plan for as long as necessary to overhaul and repair all the broken equipment. Keep the public properly informed at every step of the way. Don’t quit until all Eskom’s machinery is in a fit and proper condition.

At the same time, move construction at Medupi and Kusile onto a 24/7/365 footing and pass a temporary law banning all forms of industrial action on site. Yes, this would be an abrogation of civil rights, but it is also a national emergency. As I have written before, most of the delays at Medupi are directly attributable to NUMSA and government’s supine response to trade union blackmail.

A third leg of the plan would be to declare force majeure and suspend the supply of electricity to BHP Billiton’s giant aluminium smelters. Aluminium has been described as ‘congealed electricity’ and the export of cheap aluminium under our current circumstances is madness, especially given the extraordinarily high cost of running power stations on diesel. We don’t know for sure, but energy industry experts think BHP Billiton is paying Eskom between 20c and 26c per kilowatt hour. We do know that Eskom’s diesel power stations produce electricity at a cost R3.00 per kilowatt hour.

It’s not just madness to continue this, but a form of criminal insanity which the entire nation is having to bear, now and well into the future. Sorry, BHP Billiton – but just like the unions and the rest of us, you’re going to have to take some pain too.

The upside of this approach is clear.

The business community would breath a sigh of relief. The months ahead might look painful, but at least there would be a firm plan in place. Once Eskom is properly fixed, business confidence would jump.

A clear plan and the firm commitment to carry it through would also play well with the ratings agencies like Fitch and Standard & Poor’s. It would certainly stave off a downgrade, and if the plan were executed properly, could even result in an upgrade.

Finishing Medupi in the shortest possible time would send a very similar signal and the additional electricity freed up by suspending supply to the Bayside and Hillside smelters would also have inestimable benefits. Perhaps maximum load-shedding would not be necessary after all?

But to carry on as we are at the moment is like driving a rattling, creaking, clanking old car and refusing to take it into the garage for repair. Sooner or later, it’s going to conk out completely and leave you stranded at the worst possible time on a road that is dark, lonely and deeply unpleasant.